- The draft of the EU Chip Act 2.0 adjusts its core strategy, shifting the policy focus from attracting Intel (INTC:US) and TSMC (2330:TW) to build wafer fabs on the supply side to boosting local demand for chip manufacturing in Europe.
- Henna Virkkunen, the EU's technology affairs chief, will outline the updated semiconductor strategy on Wednesday, aiming to stimulate demand by encouraging member state governments to procure chips from local startups and striving to simplify the centralized European financial subsidy distribution mechanism.
- Key companies in the European local supply chain showed mixed market performance on Tuesday, with Intel's stock price retreating by 4.67%, while TSMC rose by 1.06%, ASML (ASML:NL) increased by 1.35%, and BE Semiconductor (BESI:NL) went up by 1.19%.
Supply-Side Subsidy Policy Setbacks Prompt Strategic Shift
The first version of the EU Chip Act, passed in 2022, set ambitious goals to increase Europe's share of global chip production to 20% by 2030. However, this supply-side-led strategy has recently faced significant setbacks. Intel officially canceled plans to build two large wafer fabs in Germany last July, citing financial considerations as the direct reason, but this reflects a deeper issue of Europe's lack of customer procurement commitments. Without strong local design ecosystem support, relying solely on financial subsidies to attract advanced wafer fabs will be significantly more challenging.
Focusing on Local Demand to Address Fundamental Supply Chain Gaps
The newly disclosed draft of the Chip Act 2.0 indicates that European policymakers are shifting to acknowledge the flaws of the old model. The new strategy will focus on stimulating local demand for advanced chips. Virkkunen's upcoming plan shows that public procurement will become an important lever, with governments encouraged to prioritize purchasing from local chip startups. If this policy can be effectively implemented, it may provide initial order guarantees for Europe's local advanced chip designers, alleviating the difficulty of establishing wafer fabs due to a lack of major customers.
Emulating the US Act to Simplify Fragmented Financial Approval Processes
In addition to demand-side management, streamlining the subsidy mechanism is another core element of the new act. Compared to the US 2022 Chips and Science Act, which directly mobilized $39 billion in federal funds, offered a 25% federal investment tax credit, and was supplemented by additional state support in a centralized manner, Europe's previous €43 billion plan faced issues of fragmented funding pools. The funding sources included other EU projects and heavily relied on individual member state subsidies, requiring lengthy evaluations by the European Commission. If this reform can effectively simplify Brussels' political constraints and multi-layered review processes, Europe's decision-making efficiency in attracting international semiconductor giants' investments is expected to improve marginally.
Europe Lacks Advanced Capacity but Controls Key Equipment Segments
Although European politicians have historically faced challenges in attracting advanced wafer fabs and stimulating corporate innovation, Europe is not without leverage in the AI and global semiconductor race. ASML, Europe's most valuable tech company, almost monopolizes the global market for indispensable lithography equipment in advanced chip manufacturing. Meanwhile, BE Semiconductor and ASM International hold significant positions in advanced packaging and key manufacturing equipment, Infineon (IFX:DE) leads in power semiconductors needed for data center power control, and Soitec (SOI:FR) firmly occupies a critical share of the basic materials supply side. This means that even if the new act fails to meet expectations in creating local demand, Europe can still maintain an important strategic defense capability amid macro risks due to its absolute control over key micro-segments of the global semiconductor supply chain.
